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I’m a Gold Bug—Because I’ve Seen Real Inflation and Devaluation

Commentaries & Views

People often say that Hell hath no fury like a woman scorned. The phrase comes from The Mourning Bride, written by William Congreve in 1697. He put it this way:

Heav’n has no rage, like love to hatred turn’d,
Nor hell a fury, like a woman scorn’d.

I think this psychology is relevant to us as speculators today.

It certainly applies to more than romance. It explains why religious fanatics seem to hate heretics more than followers of other faiths. Similarly, it fits investors, who, once disappointed, refuse to give a stock a second look—even when a company makes real improvements.

I think we’ll see this psychology in full furious force if—or when—people come to understand that the US dollar is not the secure store of value they imagine.

It’ll be like a jilted lover in a television comedy who could see no wrong in her beau until his base nature was exposed beyond deniability. Love turns to hate. Virtues turn to vices. The ne’er-do-ill becomes a ne’er-do-well.

I can relate to this personally. That’s not because I loathe my exes—I don’t. My experience is USD-specific.

You see, I can remember the moment when I first learned about inflation…

I was about 11 or 12. We were driving somewhere in Mexico City. Driving anywhere in Mexico City takes hours, or so it seemed to me as a boy, so we had plenty of time to talk. Not long before, I had scrounged old stuff I didn’t need or want and held a sort of garage sale on the front porch of our apartment building. I made 500 pesos selling old puzzles, pictures, toy cars, and such. I was very proud of my results—500 pesos seemed like a real fortune! I was telling my mother, who was driving, how I would run a store if I owned one. She was, as ever, positive and encouraging. But at some point, she pointed out that I’d have to deal with inflation. Then she had to explain what that was.

Mind you, this in Mexico in the 1970s. Her explanation wasn’t about unanchored expectations or consumer confidence. It was about government policy. Money printing.

This is why everyone in my family in Mexico at the time was saving in US dollars. They hardly evaporated at all compared to pesos. The family still does this today.

I was aghast.

I felt sick—literally nauseous.

How could it be that money one worked so hard to earn could simply melt away while one held it? That this was the result of policy was intolerable. Why, they did it on purpose! Like a playground bully, they took from people—hurt people—because they could.

I don’t remember what happened next, but I do remember converting my pesos to dollars the first chance I got. Paying the bank an exchange fee bothered me, but not as much as the idea that my pesos would become worth less and less over time.

Once I had converted to dollars, I felt so much better. The relief was almost physical. My hard-earned savings might last longer than ice cream in the sun.

I also started insisting on getting paid in dollars for any chores I did for others, allowances I got, or things I picked up in the US for friends in Mexico.

But the real clincher was that some time later, there was a bank holiday and the peso was devaluated overnight. I don’t remember the precise numbers or date. It was something like 20 to the dollar one day, and 40 the next.

Since then, there have been many devaluations. I think zeros have been cut off the peso more than once. But that was my first personal experience with devaluation.

Can you imagine how fantastic it felt to have my meager savings in dollars when it happened?

And how furious I was over the pesos I had not yet had time to convert to dollars when the devaluation hit?

Many economists basically argue that inflation is “just something that happens” in an economy. This can’t be said of a devaluation. That’s obviously the result of policy, even if only a policy of denying inflation for too long. Again, those… criminals… did it on purpose.

I’ve never forgotten this experience.

My family moved back to the US in 1979. Imagine how I felt when I found that my trusted friend—my financial guardian—the US dollar was being inflated away at an astounding rate.

Heaven hath no rage…

This was the first year I started making “real” money. I mowed lawns, delivered papers, and even took up the manly trade of babysitting. I converted my savings into silver dollars as fast as I could. Well okay, I bought a bike too. But I didn’t want to hold my earnings in that traitor, the dollar, any longer than absolutely necessary.

You may remember the rest of that story: my silver saved my family from hardship some 20 years later.

Most Americans have not had this experience. The ones who remember the 1970s have their own emotions on the subject, but even that’s not quite the same. Alas, I think the ones who’ve yet to experience high inflation at all will do so soon. And come the day, I expect the psychology of most Americans to be similar to that of those of us who’ve experienced monetary betrayal.

But here’s where it gets interesting: many people all around the world do know what high inflation feels like.

That’s exactly why, like the lovestruck girl in the comedy, they overlook the wrongs done by the issuer and backer of the US dollar.

It’s also why, when disappointment turns love to hate, the reaction will be so strong.

Like me in 1979, they will know what it means when the traitorous financial guardian is revealed for what he truly is. They will feel it deep down inside.

Hell hath no fury…

I can’t tell you that this will happen this year.

It may not happen for more years than dollar skeptics like me imagine possible.

But nothing lasts forever.

I’m certain that whenever it happens, the backlash will be epic.

Which brings me to the key point:

Whenever the US dollar’s true nature as just another worthless fiat currency is made painfully obvious to all, we won’t want to be caught on the wrong side of the resulting stampede.

Or, put another way, diversifying into monetary metals is like buying home insurance—and the time to do that is before the house catches fire.

A day late can be way too late.

This is no merely intellectual argument for me. I can still feel the shock of that overnight devaluation of the peso in the 1970s. This truth is a visceral reality for me.

This is why I still save in gold and silver to this day.

It’s why I’m willing to speculate for gains on a compelling value proposition—as long as it’s based on something real. That includes resource companies that have projects of true merit, or mines that make good money. (Which stocks, of course, is what subscribers to The Independent Speculator pay to know.)

Switching metaphors again, the dollar will be revealed as the emperor with no clothes someday. When this happens, our grasp of reality—literally, in the case of bullion—could save us and our families from great hardship.

This is not theoretical for me; it’s something I’ve lived.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.